Tag Archives: boom

REVOLUTION by Community and Love

Community is the missing link for our United States of America.  The first word of our name is UNITED. Is that smell the rising scent of our common humanity or is it just another political organization doing its thing? Before we scatter to the winds, why not consciously join hearts across this nation, abandoning the antiquated boundaries of our localities that have for too long defined our identities and political will.  Why not abandon hatred and divisiveness to replace them with love and compassion?  This sort of radical change would be a demonstration of strength.

 

The NRA (Hate Group # 1) is not necessary for Americans to keep their guns. Why should they have so much sway in the policies of our nation? Why is the Ku Klux Klan (Hate Group # 12) back in our conversations? Why do OUR representatives favor the wealthy over the poor?  Why do these same folks provoke racial tensions or divert our attention with moral and social issues to cover up their destruction of the middle-class economy?  Why do we even listen to the vitriol of a White Supremacist? (Hate Group #2).

 

When ordinary Americans can’t buy food, find health care and enjoy their lives, transgender restrooms won’t matter. I hate the fact that women have faced sexual harassment. I have two daughters and two granddaughters. I don’t want then harassed. But this issue is being used as a diversion to hide the truth about the tax bill and budget, which are designed for the wealthy and corporations.  The deficit is going to balloon!

 

My life has been built on a positive belief in the wonderful prospects for America. But the current prospects for the average American are bleak. Change is needed and fast.  I believe without a single doubt that a revolution in the economic construct of our nation is necessary to solve this disaster in the making.  Why should the top 1 % or even the top 10% of wealth holders have all the advantages? The only way this happens is if ordinary folks come together in communities to force the change. When the bubble bursts for the stock market and the economy tanks, it will be dismal for a very long time.  We have an example to learn from if we will.

 

In mid-2016, a poll conducted by the Harvard Institute of Politics found something startling: only 19% of Americans ages 18 to 29 identified themselves as “capitalists.” In the richest and most market-oriented country in the world, only 42% of that group said they “supported capitalism.” The numbers were higher among older people; still, only 26% considered themselves capitalists. A little over half supported our capitalist system. This represents more than just millennials not minding the label “socialist” or disaffected middle-aged Americans tiring of an anemic recovery. It shows that most of our citizens are uncomfortable with the country’s economic foundation—a system that over two hundred years ago turned a fledgling society of farmers and prospectors into the most prosperous nation in human history.

 

Why the change in attitude? It’s the realization that capitalism is not a fair system as practiced in the USA.  It creates suffering.  It continues to create pockets of poverty and does not include those pockets in any recovery. Resources are directed elsewhere. The early days of American capitalism—the nineteenth century after the Civil War, the “Gilded Age,” the era of the “robber barons”—were always beset by a cycle of boom and bust. The great runs of expansion and opportunity that arose, were always coupled with a cataclysmic depression right around the corner. Boom and bust, boom and bust—this was the necessary pattern of the American economy in its primitive state.

 

 

But now the U. S. economy is dominated by our government sector, which is managed by people who have no clue how our economy works. Just look at the current tax reform legislation in Congress.  And an assessment of how the Great Recession of 2007-2008 was handled shows how close we came to disaster.

The U.S. Financial Inquiry Commission produced its findings in January 2011. It concluded that “the crisis was avoidable” and was caused by: widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; an explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.

Amazingly, not a single executive of any bank or brokerage firm went to jail.  The CEO of Merrill Lynch gave himself a large bonus, even though he had to sell his bankrupt business to Bank of America.  The CEO of B of A finally was forced to resign based on his purchase of both Countrywide and Merrill Lynch.  Many executives faced clawbacks of bonuses and pension contributions.

But the stock market—–OH MY!

On December 10, 2007, the Dow Jones Industrial Average (DJIA) reached 13,727.03.  On March 6, 2009, the DJIA fell to a low of 6626.94, a 51.7% drop from the high.  Since that low, the DJIA has steadily risen to a high of 23,557.23, or 3.5X.

What happened to drive prices so dramatically higher? The simple answer is that there were more buyers than sellers. But there were other factors.   TARP was passed by Congress in 2008 and created a group of programs to stabilize the country’s financial system, restore economic growth and prevent foreclosures in the wake of the 2008 financial crisis through purchasing troubled companies’ assets and equity. Congress approved the $787 billion American Recovery and Reinvestment Act. The economic stimulus package ended the Great Recession by spurring consumer spending. Its goal was to save between 900,000 to 2.3 million jobs. Most important, it instilled the confidence needed to boost growth.   It also aimed to restore trust in the finance industry by limiting bonuses for senior executives in companies that received TARP funds. These two actions saved the financial system and spurred employment.

During this period, the Fed drove interest rates to very low levels and they have remained low.  Bonds did not offer an attractive alternative to stocks. The economy has grown at an average rate of 2.1% which is not sufficient to create inflation and a robust demand for goods. But corporate earnings have been strong as companies have cut costs and improved productivity on a large scale.   Corporations have also used cheap borrowed money to buy their own stock, which decreases the shares outstanding and raises earning per share, leading to higher stock prices. This has a major impact on the stock market.

And NOW?

Without question, the rise in stock prices has been gigantic and it is not all that easy to explain with traditional measures.

The proposed tax cut for corporations should help some in 2018 and may lead to the repatriation of funds held offshore.  The difficulty is that many companies have shifted strategies regarding growth opportunities. They no longer desire to grow organically but are much more likely to buy market share and look for new opportunities through acquisition.  Productivity improvements which are reflected in stock prices and shareholder value are derived from employment reductions for the most part.  Do not expect a huge bump in economic growth.

The elimination of deductions and the bracket changes are going to be a wash for the middle class.  People with incomes between $500,000 and $1 million are likely to be the big beneficiaries.

In 2018, the economy is likely to grow by 2% and inflation is likely to remain subdued.  There do not appear to be any pricing pressures: employment has been strong, but wage gains have been modest; capacity is available in manufacturing; commodity prices have shown only modest gains.  Look for a relatively flat yield curve with long rates coming down ¼-1/2 point to 2½% or so on the long treasury.   The stock bubble is going to burst in advance of a recession in 2019 which is likely as productivity gains and stock repurchases run their course and the yield curve stays flat. Look out below!

What Next?

Our country has experienced a self-righteous upsurge in political loyalty and ideology that blots out conscience and absolves every criminal action in the name of wealth and class, race, patriotism, and party.  The citizens of America must demand a government based on trust, loyalty and the greater good.  This will require a major change in our government.

A community-based nation would have to acknowledge certain basic rights.

The right to life is the most fundamental right, of which all other rights are corollaries.  No one may force you to do anything, no one may injure you in any way, and above all, no one may take your life.

The right to liberty is a part of the right to life., specifically referring to your freedom of action. You may do what you want, when you want, provided you don’t trample on the rights of anyone else.

Property rights are an extension to the right to life, to own and use the product of your labor. If the tools of your survival are subject to random confiscation, then your life is subject to random destruction.

The right to the pursuit of happiness is freedom of action. The right to the pursuit of happiness means a man is free to do anything he pleases if it doesn’t conflict with the rights of others.

The right to free speech is a recognition that speech if devoid of physical threats is not an initiation of force and does not warrant any retaliatory force. Freedom of speech is required for liberty because without the freedom of speech, you cannot persuade others of what is right and what is wrong. Without the freedom to persuade others, only force can make people act in a certain way. Freedom of Speech is an important check on government because it allows transgressions to be identified and fixed rather than hidden and perpetuated.

The right to defend yourself is a corollary to the right to life. You must be able to protect what is yours when it is threatened.

Taxation is a form of force which is immoral, destructive, and unacceptable whether perpetrated by an individual or government. Specifically, taxation negates the concept of property rights by claiming that the government has first right to the income or money of its citizens.  The view that every man’s work is the property of the state, and he can keep only what the state feels appropriate, is contrary to the view that man has a right to exist for his own sake. Taxation is inconsistent with DEMOCRACY.  Only when individuals deal with each other as having equal rights and no one is sacrificed to anyone and nothing is extorted to “common” or “individual good” — only then can people truly see each other as a benefit and an asset rather than another competitor for the same stuff. A community based on love and equality will thrive.

A moral government with a narrowly defined role of preventing the initiation of force is a great good to all citizens.  The vision would be that our Federal Government would have only the responsibility for providing a military force for the protection of the citizens.

State governments would have responsibility for maintaining basic laws concerning safety and equality of its citizens.  They would manage the police force, manage airports and roadways, and ensure property rights are observed.  Airports and roadways would be financed by user fees.

Less government intrusion and spending.

Let’s call a CONSTITUTIONAL CONVENTION to repeal Amendment 16; to repeal Amendment 12; to amend Amendment 22 to include term limits for Congressmen and Senators; to amend Amendment 27 to make the cost of living formula for raises for Congress to the same used for Social Security. Revise Amendment 12 such that federal powers do not supersede state powers.

If you want more information on how history is repeating itself, email me at tekimthims@aol.com and I will send you a longer a longer commentary.

T. Michael Smith, COQ

(Chief of Quirkiness)